Tag Archives: financing

While nearly half of Canadian homeowners don’t plan to sell their homes when they retire, many are still unsure what they’ll do. Moving to a new city or downsizing to a more compact home can offer advantages but, depending on your goals, a few disadvantages as well. If you’re thinking about a post-retirement move, consider these pros and cons before you start packing:

When you relocate to a new city or property…

PRO: Save money on daily expenses: If you relocate to a less expensive area, you’ll be able to stretch your retirement savings further. Consider the benefits of a suburb vs. city, and look to exotic areas that provide a lower cost of living. Need a little inspiration? Mexico, Panama, and Costa Rica are popular post-retirement spots for Canadians. Or, look to Buenos Aires, Argentina, where you can rent a one-bedroom apartment (in a good area!) for as little as $400 a month.

CON: Spend money on moving costs: Even if you’re exchanging your current digs for a less expensive property, moving isn’t cheap — real estate agent expenses, land transfer tax and moving costs can dissolve a big chunk of money. In Toronto, for example, land transfer costs, legal fees and moving expenses alone could be $15,000 or more. Plus, you’ll have to consider the cost of traveling to visit family, but if you pick a tropical locale, Canadian relatives may be more likely to come to you.

The Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings Account (TFSA) are two savings products that each have their own objectives and advantages. Which one is best for you?

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When should you choose an RRSP?

The RRSP is most often used to build savings, tax free, for use at retirement. Tax on earnings is deferred until the funds are withdrawn from the plan, generally at retirement age. This is an excellent way to defer a portion of your salary in order to make up for any shortfall in your income after you retire. Also, RRSP contributions can be deducted from your taxable income, which may lead to tax refunds.

RRSPs are especially beneficial if the amount withdrawn is taxed at a lower rate than the rate in effect when the amount was initially deposited. This is the case for most people because their income at retirement is usually lower than when they were working. RRSPs also open the door to other related programs, such as the Home Buyer’s Plan (HBP).

When should you choose a TFSA?

The TFSA will allow you to invest up to $5,500 in 2015 for various projects, without being taxed on the investment income earned. As with an RRSP, when funds are withdrawn from the account, the capital and income are not taxed. The difference, however, is that TFSA contributions are not deductible from taxable income.

TFSAs can be advantageous for a number of short-term or medium-term projects, and are ideal for setting aside an emergency fund. The TFSA can also be beneficial in the long term for:

people who expect their tax rate to be higher when they withdraw funds from an RRSP than when they contribute to an RRSP

people who have already maximized their RRSP contributions and still have funds to invest outside a registered plan

retirees age 71 or older who can no longer contribute to an RRSP

low-income earners, such as students (18 or older) and people who have access to Guaranteed Income Supplements (GIS), who manage to save some money

Both RRSPs and TFSAs allow investors to choose from a wide range of financial products. The following table will give you a quick overview of their distinguishing features.

RRSP

TFSA

Contribution room1

2015: $24,930
2014: $24,270
(up to 18% of income earned)

2015: $5,500
2014: $5,500
(no matter the income earned)(indexed according to the CPI and rounded to the nearest $500)

Contribution tax-deductible

Yes

No

Unused contribution room carried forward

Annually

Annually

Creation of new contribution room if withdrawal

No

Yes, effective the following year

Tax on income

No

No

Tax on withdrawals

Yes

No

Plan maturity

The year of the 71st birthday of the contributor

None

Spousal contributions

Yes

No
Although you cannot contribute to your spouse’s TFSA, funds can be transferred to him/her so he/she can contribute to his/her account, and the income generated will not be subject to the income attribution rules.2

Use as collateral

No

Yes

Mandatory minimum withdrawal

Yes (once the RRSP has been transformed into a RRIF*)

No

*RRIF: Registered Retirement Income Fund

Still undecided?

Get in touch with your dedicated Business Development Manager, who will be pleased to refer you to an expert for advice adapted to your situation and your projects.

For RRSPs and TFSAs, certain penalties may apply if you exceed the eligible contribution limit.

Attribution rules are a tax mechanism whereby an individual who transfers assets to a third party must include the income earned from these assets in his or her own income.

The information in this article is not exhaustive and is for information purposes only. For financial advice or any question concerning your investment options, please consult your National Bank advisor or a professional (accountant, tax specialist, lawyer, etc.).

No matter how well you plan, you simply can’t predict if and when unexpected expenses are going to arise — and inevitably they will. Your pay cheque may only go so far towards covering costs, and you’ll want to avoid going into debt or dipping into your retirement or long-term savings.

So what can you do to prepare?

Start saving now.
Open a separate savings account for emergencies, and get into the habit of depositing a weekly or monthly amount, even if it’s just $10 or $15. That may mean one less meal out, but it will add up over time. A great way to get started is to set up automatic savings. Once you’re in the habit of automatically setting money aside each month and adjusting your spending habits, you can gradually increase the amount. Continue reading →

A growing number of Canadians are buying a second a home. Given the current state of affairs at the global level, many people who live in the city are dreaming of getting away from it all in a more peaceful setting, while others who live far from the lights of the big city are looking for a place closer to the action.

Even though a second home is often referred to simply as a vacation property, the decision to buy should never be taken lightly because there are some major factors to consider.

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Downpayment is only the beginning

Buying a property means that your borrowing capacity will have to be evaluated and you will need to draw up a detailed budget. There are a number of other factors to take into account when buying a second home. After all, you’ll probably be spending less time in your second home than in your primary residence but you’ll still be faced with the maintenance costs and other expenses associated with home ownership. For example, you have to cover taxes, insurance, heating, electricity, water as well as possible renovations, seasonal upkeep and transportation. All of those expenses are in addition to what you’re already spending on your primary residence!

As you can see, before you start looking for the ideal location or the property of your dreams, you should take a close look at your budget to see whether you can afford all the costs that will be involved in owning a second home.